Resist the Impulse

— The highlight of the coming week for markets will be the Federal Reserve meeting that concludes Wednesday. Deutsche Bank economist Joseph LaVorgna is looking for a more cautious tone “given the sharp decline in global equity markets and further appreciation of the dollar.”

— Other economic data points to watch include Q4 GDP and the employment cost index (Friday), durable goods orders (Thursday), and consumer confidence (Tuesday). On the earnings front, watch for results from Apple (AAPL) on Tuesday, Boeing(BA) on Wednesday, and Amazon(AMZN) on Thursday.

— Crude oil gained 20% on Thursday and Friday, its biggest two-day jump in history. Increases in price of 10% or more from a low have, in three out of the past four cases, marked the end of major bear markets for the commodity, according to SentimenTrader — leading to gains of more than 33% over the next three months. The years were 1986, 1990, 1998 and 2008.

— The Russell 2000 Index, the measure of U.S. small caps, sank to a level 21% beneath its July high in the middle of last week, meeting the traditional standard of a bear market. The equal-weight S&P 500 (RSP) was down 16% at its worst, while the regular S&P 500 sank 12.8% at its worst.

— Although the broad market has not met the traditional standard of a bear market, it has met several of my own criteria, such as sinking under its 12-month average.

— At least 40 stock markets around the world with a total value of $27 trillion are in bear territory, according to Bloomberg. The UK was the latest to fall into bear territory, and India is close. Near the threshold, but not fully engulfed in flames, are Australia and the Czech Republic. New Zealand and Hungary are putting up the best resistance, limiting losses to less than 7%.

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Internal Sponsorship

— Bear markets are all about preservation of capital. You need to resist the urge to buy dips and to consider your favorite stocks bargains because they look cheap.

— And you need to resist the impulse to think it’s all over because the market has risen 1% or more two days in a row. The biggest advances in DJIA history all occurred during bear markets because of the heavy short-covering. Just remember that bear markets are about liquidation, not accumulation.

— All veteran investors have their own views on what makes for an all-clear signal. But if you want to keep it simple, just wait for the S&P 500 to trade above its 12-month average again, preferably for two months in a row. Following the last big bear market that happened in July 2009 at around the 1,000 level, the bull market went on to run for another six years.

— Speaking of bottom calls, I have seen experts insist we have seen the end of the crude oil bear market after every two- or three-day advance. However, the Saudis still say that they plan to keep the pressure on American unconventional oil companies — i.e. the shale frackers — till they go broke. They’ve taken it this far, and they mean business, so don’t fade them. The Saudis can still reportedly make money on crude at $15/barrel, while break-even for U.S. frackers is $40. This is one of the dirtiest, rottenest, most contemptible, global business ploys the world has ever seen. You’re witnessing history.

— The frackers might not go broke as fast as the Saudis expect, however. The Dallas Fed has reportedly instructed banks in its region to order asset sales by distressed energy firms rather than forcing bankruptcies, delaying the outcome the Saudis are looking for. TIS Group notes that the real loser in this game would be Russia, which has seen the ruble crash along with its economy. Most experts do not believe the Russians could survive $10-$20/barrel oil prices, nor could Brazil or the Persian Gulf sheikhdoms.

— There is some speculation that the Russians would stir up a new Mideast crisis that threatens the area’s energy supply in a crass attempt to boost the risk premium of crude oil and thus boost their own fortunes. Don’t think they wouldn’t do that. They would.

— A sizeable bounce in global and U.S. markets is overdue — possibly one that takes benchmark indexes back up as high as 2,000 for the cash S&P 500, or even to test the “dome of doom.” Markets are equal-opportunity destroyers of human will, and it is probably now short-sellers’ turn to feel the pain of their convictions.

— The rally will likely fall well short of the dome as eurozone, emerging markets, China and Japan are in wretched shape, and likely to drag down any recovery. Deflation seems like a beast from a bygone era, but the commodities markets warn that it is here. If the Chinese devalue the yuan further, watch out below.

Best wishes,

Jon Markman

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Jon began his career as editor, investment columnist and investigative reporter at the Los Angeles Times. As news editor, his staffs won Pulitzer Prizes for spot-news reporting in 1992 and 1994.

In 1997, Microsoft recruited Jon to help launch MSN’s finance channel, where he served as Managing Editor. In that capacity, Markman became the co-inventor on two Microsoft patents.

From 2002 to 2005, Jon served as portfolio manager and senior investment strategist at a multi-strategy hedge fund.

Mr. Markman is the author of five best-selling books, including Reminiscences of a Stock Operator: Annotated Edition; New Day Trader’s Advantage, Swing Trading and Online Investing.

{21 comments }

George K NaliyanTuesday, January 26, 2016 at 7:54 am

How about the Indian indices and Stocks?

LCTuesday, January 26, 2016 at 8:10 am

Should one sell their stock portfolio or are there some sectors to sell? Take whatever capital one can save and sit tight?

NagarajanTuesday, January 26, 2016 at 8:12 am

We are some of the people who never invest in index and index components. We prefer small and micro cap stocks that are profitable and dividend paying. We have achieved 27 % cagr over a 15 year period. We are confident that we will get return inspite of the poor index performance since 7% GDP growth is given for atleast another decade in india.

UriTuesday, January 26, 2016 at 9:09 am

Nagarajan –
Is there any way we can share your specific insights?

UriTuesday, January 26, 2016 at 8:56 am

If the Saudis have declared war on the US oil industry, as they indeed seem to have done and quite openly, then it behooves the US government to fight back aggressively. Possible measures: Debt relief for beleaguered shale companies and support for alternative energy enterprises. The latter should also include international cooperative projects.

JohnLambTuesday, January 26, 2016 at 10:43 am

The Saudis did not declare war on the USA. The USA, by befriending Iran, broke their alliance with the Saudis. The USA, over the last 60/70 years has proven to be the most fickle and bad faith ally in modern history. Without exception from the smallest to the largest every ally of the USA during these years has been sorely disappointed, if not outright betrayed. (Ask Pahlavi as the most glaring example, and Noriega for a more current one.)

UriTuesday, January 26, 2016 at 9:06 am

kindly explain the effect of yuan devaluation

Gerry CadenTuesday, January 26, 2016 at 9:39 am

Or maybe the Saudi’s have heard about the alternative energies being developed that could conceivably,within a few short years,make oil a near worthless commodity.
In such a scenario it would make sense for them to dump their oil now while they still have markets for it.
Truth is stranger than fiction sometimes.
I can see how your view of their current motives can be rationalised and makes sense too . But I’m beginning to consider the scenario I’ve outlined above could be just as valid.

AlTuesday, January 26, 2016 at 10:48 am

If all stake holders in the the USA and perhaps including our NAFTA partners, we could become energy independent. As I see it, there are only 3 countries in this world that can totally rely on their own resources without a need for importation. (USA, Canada, and Australia). Sure we may want to be part of the world economy, yet when it comes to energy, we can and should “drive a stake in the ground” and become independent. Alternative energy will continue to provide relief and eventually we will rely less on fossil fuel so I say if the Saudis, the Russians, the Iranians et all want to crush our energy industry, we should interject. If Obama wants to go out as someone who has vision, he should promote energy independence through all means possible.

MikeTuesday, January 26, 2016 at 12:30 pm

US oil production has doubled during Obama’s reign of terror. Indeed he is like the new kid who desperately wants to be liked by everyone. He has said yes to offshore drilling, prior to the BP disaster, yes to fracking, prior to the spate of ground water contaminations and earthquakes, yes to new nuclear facilities, prior to the Japanese nuclear disaster and yes to alternative energy, sorry no environmental disasters from clean energy. He’s even put the CAFÉ standards back in play.

hawk5000Wednesday, January 27, 2016 at 3:34 am

actually he has stopped drilling on federal lands and offshore drilling and when it comes to private lands theres not much Obama can do to stop it all the oil we are now enjoying is from George bush opening up federal lands and pushing more energy independence from the Mideast obamas comment was I need gasoline to be between $9.50 to $12.00 a gallon for my energy programs to work, and he was referring to wind and solar

JohnLambTuesday, January 26, 2016 at 11:20 am

Quote from the article: “This is one of the dirtiest, rottenest, most contemptible, global business ploys the world has ever seen. You’re witnessing history.” NONSENSE!!
It is highly amusing to hear/read an American business author bemoan the state of affairs above, which is the result of one of the basic tenets taught in all advanced strategy classes of American University MBA courses. This is bedrock in strategy classes. Walmart and Amazon pursue this strategy, as do all discount chains in the commercial sector and have closed all the Mom and Pop stores in your neighborhoods.
The frackers are damn lucky that someone like Soros is not consulting the Saudis. His strategy would be to also buy their short term paper, then refuse to refinance and take their assets against their paper, or simultaneously short them to hell and gone, and land up with the frackers’ companies, assets, and technology in the Saudis’ back pocket. Then one could have a reason to think the Saudis are being aggressive, at present they’re only trying to protect what they perceive is their turf. Whether The Saudis view is correct or not, is not a question of morality, but of their perception of existence or not. Thus it is in their interests. At present their interests diverge from USA perceived interests, that does not make them immoral, it makes them divergent and is a consequence of USA actions in befriending Iran, who are the Saudis enemies in that region. This is a 180^ about turn of USA Foreign policy since the time of Carter in 1979. The Saudis feel betrayed and abandoned. They think they have to go it alone. What is their strongest weapon? Why demonize what they’re doing? Does the USA not wage wars for what it perceives are it’s interests? So do other people. Does that make them evil? Grow up sometime.
“Trade is but war grown niggardly” Piers Anthony.

RichardTuesday, January 26, 2016 at 12:27 pm

QE4 is coming. The market will pop this year.

MikeTuesday, January 26, 2016 at 12:34 pm

Oh goody, more play money! Maybe once they’ve filled all of Wall Street’s vaults they can print some for us.

$1,000 goldTuesday, January 26, 2016 at 12:45 pm

the fed has their foot on the accelerator. the printing machine is running full throttle. just take a look at the m2 money supply.

JoTuesday, January 26, 2016 at 1:46 pm

Since New Zealand and Hungary seem to be resisting bear territory would investing in their currencies be worth consideration?

Jack RestucciaTuesday, January 26, 2016 at 8:39 pm

Crude oil gained 20% on Thursday and Friday, its biggest two-day jump in history. Increases in price of 10% or more from a low have, in three out of the past four cases, marked the end of major bear markets for the commodity, according to SentimenTrader — leading to gains of more than 33% over the next three months. The years were 1986, 1990, 1998 and 2008.

Speaking of bottom calls, I have seen experts insist we have seen the end of the crude oil bear market after every two- or three-day advance. However, the Saudis still say that they plan to keep the pressure on American unconventional oil companies — i.e. the shale frackers — till they go broke. They’ve taken it this far, and they mean business, so don’t fade them. The Saudis can still reportedly make money on crude at $15/barrel, while break-even for U.S. frackers is $40. This is one of the dirtiest, rottenest, most contemptible, global business ploys the world has ever seen. You’re witnessing history.

Oil up or down?

BeverlyTuesday, January 26, 2016 at 11:52 pm

Help. Canada can’t lose any more jobs! We all need to co-operate.

UriWednesday, January 27, 2016 at 4:11 am

Hear hear! Cooperation, led by the US, is indeed what we need – sort of a New Deal again: All out support of altenative energy development, to achieve the equivalent of $10-20 oil. This will beat the Saudi’s and their OPEC friends at their own game; will also further clip the wings of aggressors like Iran and Russia. Of course this will help American and Canadian labor and make the countires energy-independent again.

DarrellWednesday, January 27, 2016 at 3:47 pm

All of the video presentations of Weiss & company do not allow you to stop and run the tape back to re-listen to a particular portions you may not have understood because of interruption, phone calls, someone suddenly appearing at the office door with a question.
It would be a great improvement to allow us to run them back a bit to review what was said.
just sayin-

UriSaturday, January 30, 2016 at 10:27 am

Darrell – I second.

But what’s the use? Neither the editor nor anyone on his staff apparently bothers reading these comments, as I have not seen any response on their side.